I hope everyone is having a good Memorial Day Weekend. But please take a minute to remember why we celebrate the day: to honor those who have died in service of the United States. In fact, May is National Military Appreciation Month.
I’m an Army Brat. My dad was career Army and served until he had no option but to retire or become an officer. Mom was in the Navy during WWII. One brother was career Navy who became an attorney when he retired. Another brother served in the Army for a tour and I almost made it to the Air Force. So it’s nice to know that there are special tax treatments available to the military; active duty, reserve or retired. All treatments have their own qualifications and “buts”. This is intended as an overview. Please check IRS Publication 3 for all the details.
- Veteran’s Benefits are not taxed. The only time I know they come into play is for the Kansas Homestead/Safe Senior rebate.
- Combat Pay can be partially or fully tax free although it comes into play in some calculations.
- A duty move also allows an active duty military taxpayer to qualify for the Sale of Personal Residence exclusion even if they don’t meet either of the time rules. And they might qualify for a moving deduction for non-reimbursed moving expenses.
- For purposes of the Earned Income Credit, the taxpayer can chose to include combat pay in the calculation for a larger credit.
- Combat pay, along with pay differential, is also used to determine if a taxpayer has enough compensation for an IRA contribution.
- Combat pay also gives the taxpayer longer to file their taxes, claim a refund and defer collections. Service members stationed abroad but not in a combat zone also get a little long to file their return.
- Reservists can deduct the cost of their uniforms, insignias and their mileage, lodging and other training expenses. Active duty military can only deduct the insignias and related stuff. (Of course, they have to meet the miscellaneous deduction floor and other Schedule A qualifications.)
- Many states do not tax military pensions or partially exclude the income. Kansas and Oklahoma are among them.
- A military spouse can get special state tax treatment thanks to the Military Spouse Residency Relief Act (MSRRA).
- Volunteer Income Tax Assistance (VITA) provides free tax preparation services at military bases around the world.
Thanks to all who served or are serving in any branch of the military.